Daddy, daddy, are the markets less worried about the naughty Greeks now that EU governments are going to give them €110bn? Well, son, the markets were never worried about the debts of the Greeks. They were delighted by them. They saw a way of making money by betting on Athens defaulting or departing from the euro. The more money that they bet, the more painful Greece's position became and the more likely it was that the markets would win their wager.
But, daddy, that is as if you could make a horse win a race by everyone betting on it? Yes, son. And as I told you last time, it's worse than that.
Why is it worse daddy? The Greeks ARE quite naughty. They have been living beyond their means. They have been trying to run a modern state with an archaic tax system which means that many well-off people – doctors, lawyers, ship-owners – pay virtually no direct taxes. But all that has been true for a long time, son. Greece's debts got suddenly worse because, like lots of other governments, they gave billions to the banks to rescue them from the consequences of their own greed.
Yes, daddy, and some of those same banks are now betting the same billions to make money from the fact that some of the governments are over their heads in debt. You told me all that last time. But you also told me that other EU governments would warn the markets that they would lose money if they continued to bet on Greek default? Why has it taken so long, daddy?
Because the EU is a collection of governments that never quite agrees and never quite disagrees. The EU exists on muddles and fudges and compromises. The markets hate fudges. Or rather, the markets love them because they can make money out of them.
Is that all Germany's fault? Well, partly. We talked last time about that great ancient Greek Aesop and his story of the Grasshoppers and the Ants. The Germans see themselves as a nation of ants and the modern Greeks as a nation of grasshoppers. The Germans wanted the Greeks to feel some pain. They also probably wanted the euro to devalue against the dollar, which it now has. The problem is that the Greek crisis is as much about the euro as it is about Greece. The markets have spotted that Euroland countries cannot devalue or print money. If their euro partners do not help them in a crisis, they can be bullied indefinitely, or until they leave the euro. Having successfully bullied Greece, the markets are now turning on Portugal and Spain.
Even the German government has realised that playing the ant-and- grasshopper game can sometimes be dangerous, even for the ant. The bailout agreed at the weekend is far more costly than a rapid bailout, or a firm promise of a bailout, might have been. Delay has unnecessarily humiliated a decent and competent Greek Prime Minister and Finance Minister. It risks piling so much pain on ordinary Greeks – before the doctors and shipowners etc can be forced to pay their share – that the Greek economy will collapse.
Further delay might have meant bailouts for Portugal and Spain, with huge consequences for the Germans and for all of us. Even now there are doubts whether the deal can clear the German parliament, as promised, by Friday.
Isn't there another Aesop's fable which fits this story, daddy? There are loads, son, but here are two for starters. There is the story of the lion which could not eat the three bulls so long as they stuck together. The lion (ie the market) tricked the bulls (Euroland countries) into separating and ate them one by one.
And the second fable daddy? A boy bathing in a river was in danger of being drowned. He called out to a traveller for help, but instead of helping, the man scolded the boy for his imprudence. "Oh, sir!" cried the youth, "pray help me now and scold me afterwards."Reuse content